Measuring Environmental Performance: The Business Case for New Tools

Authors

• Linda Hwang

  Former Manager, Research, BSR

• Sissel Waage

  Former Manager, BSR

For years, environment and natural resource managers have been tracking individual parameters linked to air pollution, water, and energy consumption. Specific indicators are identified, measured, and trends tracked. Private, public, and nonprofit organizations have been diligently measuring water used, greenhouse gases emitted, waste averted or recycled, and many other individual metrics. Yet, academic, nonprofit, and public sectors are now placing greater attention on ecological systems. A set of tools to help companies take a systems approach is evolving, but to achieve significant uptake, the business case for these tools needs to be clearly demonstrated. BSR’s Environmental Services, Tools & Markets (ESTM) Working Group is working with member companies to define and articulate this case.

Similar to how financial analysts tracking flows of capital during the Great Depression realized that their models were missing underlying indicators of market performance, today’s environmental thought leaders recognize that they are missing critical information that could help them understand what enables natural systems to function in expected ways. Just as engineers consider system design and optimization, this emerging focus is on the structure and function of ecological systems (referred to as “ecosystems”).

Ecosystems provide measurable benefits for people’s health, jobs, and safety. Business operations and supply chains in particular are reliant on healthy, functioning ecosystems for raw materials, adequate supplies of clean water, and protection from natural disasters. For corporate managers who are currently managing water-related risk, for example, this shift leads to an additional set of questions: How does changing land cover affect the potential for underground aquifers to be “recharged” at the same rate that we expect given withdrawal demands from all users in the watershed? Will water availability in a watershed be the same over time if other changes are made to the structure of the ecosystem? Will the ecosystem continue to function in the same way that we have come to expect?

Ecosystem services assessment tools have begun to emerge in response to this information gap. These “decision-support” and “rapid-assessment” tools aim to help corporate managers and policy makers anticipate how proposed activities could change ecosystem performance. For example, many extractives companies have the opportunity to restore land that they own through a wide range of activities—from reforestation, development of conservation zones, or support for income-generating activities linked to natural resources for local communities. Tools to help them anticipate how each scenario could impact ecosystem performance as well as local communities would allow them to make decisions based on sound science, data, and local stakeholders’ preferences.

The challenge to date, however, has been that the usefulness and added value of these emerging ecosystem services tools has been difficult to determine, most notably due to a limited number of tests in corporate settings as well as uncertainty related to the internal and external data required to run the tools. To begin addressing this challenge, BSR’s ESTM Working Group set up a pilot test to compare the performance of multiple tools for one possible corporate application. Seven tool-developer teams (see the full list of tools included in this assessment below) were asked to apply their tools to the same scenario—a hypothetical residential housing development in the San Pedro watershed in Arizona. Each team was given a common data set from public agencies and asked to respond to one set of questions, with a focus on four key parameters:

• water provisioning
• carbon sequestration
• cultural services
• biodiversity

The San Pedro watershed was chosen because it is an ecologically diverse area that has been exposed to mining operations, has cultural significance to eleven Native American tribes, and is well-documented in terms of ecological data and the effects of human use. In addition, the U.S. Geological Survey and the Bureau of Land Management (BLM) have launched a study to evaluate the usefulness of two ecosystem services tools to BLM’s land use decision-making process, which will allow us to compare our results to this study.

Emerging Tool Domain

After reviewing the results from all of the tools, working group members had new information as well as many additional questions. Foremost was whether the tools provide additional value when compared with existing approaches used by companies to assess environmental and social impacts of projects. For example, one participant shared her experience with a reforestation program undertaken by her company. Instead of developing a program to simply restock the area with existing forest that had been depleted, the company challenged itself to take ecosystem services into consideration. As a result, a different reforestation plan was developed for the same cost, but likely with more benefits to the local community and area. Unfortunately, the company does not have a way to compare the benefits generated by the two reforestation programs. Ideally, the tools would allow the company to do a comparison before the start of the program to understand the change in benefits to local populations, the local area, and for the company itself.

Unfortunately, the business case is unclear for the use of these tools in general, particularly when considered in relation to the environmental performance assessments and measurements already conducted within companies, as well as the lack of regulatory, shareholder, investor, or key stakeholder demands for the uptake of ecosystem services tools. Corporate managers need reliability, credibility, and documentation that help them substantiate the decisions they make to move forward with certain tools. Given competing demands on internal time and resources, the use of these tools must pass the same “hurdle rate” as any other initiative or project. In other words, they need to demonstrate key benefits to justify their use. These benefits would include:

• Widespread support for the tool from various stakeholders
• Documented cases of the replicability of findings
• More informed decisions
• Decreased vulnerability to risk
• Cost savings
• Improved regulatory relationships
• Streamlined permitting processes

Until some or all of these benefits can be demonstrated, companies will find it difficult to advocate for the use of these tools in addition to the suite of efforts already underway to manage their corporate environmental footprints.

Moving Forward

While the findings of this comparative assessment left many open questions, it did shed light on some potential areas of corporate application of the ecosystem services approach. As one member noted, she wants to have the ability to:

• Compare trade-offs between various projects or initiatives
• Broaden the benefits for the local populations where the company operates
• Retire or decommission a project in a way that maximizes benefits and is cost-effective and timely
• Take a landscape-level perspective, but also see facility-level impacts up and down the supply chain
• Understand the company's impacts and dependencies on ecological functions
• Understand how the local populations impact and depend on ecological functions
• Make informed decisions based on sound science
• Collaborate with regulators and communities in a transparent process

This is an ambitious list of priorities, but not impossible. As these tools and the field continue to develop, they may complement or be integrated into environmental and social impact assessments already undertaken by many companies, and ultimately deliver on a number of these desired benefits.

These ecosystem services tools have the potential to be transformative—and potentially disruptive—technology for corporate environmental performance measurement and management. While the future of these tools is unclear, it is clear that companies today are operating in a new era. The trends toward ecosystem services focused environmental performance are gaining momentum. One participant from the U.S. Department of Agriculture noted the significance of the shift in thinking on the management of natural resources, comparing it to the shift that took place during the Cold War. He noted: “That war utterly changed geopolitics and caused us to do some fundamental re-thinking. The same thing is happening now with respect to how we value natural resources. We’re seeing it now in a whole new light and realizing we need to do things very differently.”

The direction of the change in environmental thinking is clear; what is less clear today is whether and when these tools will be ready for broad-based application in corporate settings. Therefore, there are tremendous opportunities to engage with ecosystem services tool developers in order to help shape what may become additional environmental performance expectations in the future.

Join us to continue this discussion on incorporating ecosystem services into decision making at the BSR Conference 2010 session “New Expectations: Corporate Environmental Performance” on Thursday, November 4 in New York.